Reward/Penalty scheme to promote low environmental impact cars

Since December 2007, France has started a reward/penalty scheme to encourage a behavioural shift towards sustainable transport. The scheme is designed to adjust the price of cars according to fuel consumption and as such the associated CO2 emissions.

The challenge

The average fuel consumption of vehicles in Europe is 143 g/km (European Vehicle Market Statistics, 2013). This average needs to be brought down to meet the European Union’s CO2 emission reduction target of 130 g/km by 2015. To achieve this target innovative policy mechanisms (e.g. providing incentives to encourage the purchase of smart cars) need to be introduced in all European countries. The French demand-side policy of rewarding/penalising consumers according to the CO2 emissions of the cars they purchase is an example of such a mechanism.

The measure

By introducing a tax instrument (“bonus-malus”, a reward/penalty scheme) in 2007, the French Ministry of Sustainable Development and Energy aimed to promote the replacement of older, low fuel efficiency cars with new efficient alternatives while encouraging manufacturers to develop low-emission vehicles.

The scheme provides a subsidy or a cost on topof the purchase of a new car depending on the amount of CO2 emissions per kilometre as follows:

Subsidies

Penalties

Emission level

(g CO2/km)

Amount (EUR)

Emission level

(g CO2/km)

Amount (EUR)

121-130

200

161-165

200

101-120

700

161-165

750

61-100

1000

201-250

1 600

<60

5000

251<

2 600

In addition, the “Super Bonus” provides €1 000 to consumers for scrapping a car 15 or more years old when buying a vehicle eligible for rewards as listed above.

Lessons learnt

The scheme is based on the assumption that taxes collected through penalties on the purchase of high-emission cars will finance the cost of subsidies given to low-emission vehicles. This mechanism was thus supposed to be supporting private demand of environment-friendly smart cars on a cost-neutral basis. However the tilt of buyers to purchase subsidised cars was so high that the government had to provide €200 million more in addition to the amount collected through charging penalties.

Further deployment

The effects of the scheme are evident when comparing the sales of “large-plus” category vehicles that include Audi Q7 and Mercedes G-Class SUVs with “basic” vehicles including Renault Twingo, Citroën C1 and C2 and Ford Ka models.

The sales of “large-plus” vehicles fell by 40 per cent year-on-year in the first quarter of 2008 and the sales of “basic” or very small cars were 31.2 per cent higher in the same period.

The government is planning to extend the scheme to other energy-using products such as electrical appliances in the future. Since the scheme has been successful in creating demand for low-emission cars, its maturity is an estimated 9 on the GML scale.